Sebi member warns against 'race to the bottom' among MIIs at BS BFSI Summit

Ananth Narayan Gopalakrishnan, whole-time member, Securities and Exchange Board of India (Sebi), shares insights into MIIs at the Business Standard BFSI Insight Summit

Bolstering the governance frameworks of India’s market infrastructure institutions (MIIs) is crucial for ensuring investor protection and market integrity, Ananth Narayan Gopalakrishnan, a whole-time member of the Securities and Exchange Board of India (Sebi), said on Thursday. In his keynote address on the second day of India’s largest banking, financial services, and insurance (BFSI) event, the Business Standard BFSI Insight Summit, Gopalakrishnan outlined Sebi’s intent to ensure that these bodies have skilled personnel in risk, compliance, and technology. He also warned against a potential "race to the bottom" as MIIs compete for clients.

 

Additionally, Sebi is building a cadre of specialised IT supervisors to enhance oversight of MIIs' technological operations and ensure the resilience of market technology platforms, Gopalakrishnan said.

 

 

“Today’s attention span has often narrowed to formats like YouTube Shorts and Instagram Reels, but opinions on regulatory matters remain fervent,” Gopalakrishnan said. He stressed the importance of thoughtful, calm dialogue in shaping policies that protect the public interest while fostering market confidence and stability.

 

"MIIs have a unique operating model... They are required to primarily focus on public interest and ensuring the integrity of capital markets," he explained.

 

What are MIIs?

Market infrastructure institutions, or MIIs, are entities that provide the infrastructure enabling trading, settlement, and record-keeping in the securities market.

 

MIIs include stock exchanges, clearing corporations, and depositories, which are essential components of India’s financial landscape. They enable trading, settlement, and record-keeping in the securities market.

 

Over the past three decades, MIIs have significantly contributed to the growth of India’s capital market ecosystem, acting as the "first line of defence" against unfair practices.

 

"MIIs are the first line of defence charged with ensuring investor protection and market integrity. Among other duties, they are required to ensure adequate disclosures by issuers, conduct appropriate surveillance to maintain a free and fair market free of unfair trading practices, manage risk and operations to enable smooth clearing and settlements, monitor brokers and other intermediaries, and ensure that market technology platforms and ledgers are fair, secure, reliable, and resilient," Gopalakrishnan said.

 

However, Gopalakrishnan expressed concerns regarding the potential conflicts that could arise as MIIs compete for business. He warned against a “race to the bottom” where MIIs might compromise on risk management or regulatory compliance to attract more clients.

 

Such a trend, he cautioned, could erode market integrity and undermine investor confidence.

 

Clearing corporations and ownership structure

Gopalakrishnan also highlighted the unique operating model of India’s clearing corporations, which are wholly owned by their parent exchanges. This dependence on exchanges for resources and equity infusions could create vulnerabilities in maintaining a robust settlement guarantee framework.

 

He noted that in India, the equities landscape is particularly concentrated, "in terms of one exchange and one clearing corporation dominating the equities landscape."

 

Gopalakrishnan suggested that introducing public shareholding and listing of MIIs could enhance transparency and accountability, attract top talent, and incentivise MIIs to operate with a clear focus on investor protection.

 

Challenges and risks in MII operations

The Sebi member highlighted certain risks inherent in the MIIs' business model, where they act both as market operators and as regulators of their own clients, including corporates, trading members, and depository participants.

 

Such dual roles could lead to conflicts, particularly if MIIs prioritise commercial gains over regulatory duties. This might result in inadequate investment in essential areas such as cybersecurity, technology upgrades, and operational resilience, thereby compromising their role in upholding market integrity.

 

Gopalakrishnan cautioned that any dilution in MIIs' commitment to investor protection and suitability standards when introducing new products could affect the long-term stability of India’s financial markets.

 

"We must ensure that our commercial regulators focusing on public interest are never seen to become regulatory duopolies focused on private returns," he concluded.

 

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